“What began as a function that reported merely on past events is now transforming into one that focuses on why those event occurred as well as what is likely to happen next,” write researchers at the Association for Financial Professionals, a US-headquartered professional society that represents finance executives globally.
They are describing the finance department’s FP&A team, which is at the forefront in helping CFOs answer questions posed by the CEO, the board and others in the organization about where the company is today and where it is going to end up tomorrow.
Most of the 255 corporate respondents in the 2016 Financial Planning & Analysis Benchmarking Survey come from the US and Canada, but there is representation as well from Europe (10%), Asia Pacific (9%) and Middle East and Africa (7%).
We highlight the key findings below to help CFOs assess how their FP&A team stacks up against their peers and competitors on selected metrics.
How accurate are the forecasts made by the FP&A team?
Let’s cut to the chase. At the end of the day, the most important metric is how close to the bull’s eye the FP&A function is when the actual results come out.
If your team is within plus-or-minus 0.25% variance, congratulations. Only 2% of the companies surveyed have achieved this. The largest proportion (37%) say they achieve accuracy of within plus-or-minus 5%.
You do not want to be bracketed with the 21% of companies whose forecasts vary within plus-or minus 10% – or the 9% where the variance of the forecast to actual is greater than 10%.
Are you still using spreadsheets in FP&A?
Don’t feel too bad. The majority of respondents (55%) say the spreadsheet is still the primary tool in their planning, budgeting and forecasting process.
But the rest have moved on to enterprise software, the most popular being Oracle Hyperion Planning (14%) and SAP BPC (7%).
Maybe it’s time to follow the lead of this large minority, particularly if the variance of the forecasts from the actuals is larger than plus-or-minus 10%?
What techniques do you use for budgeting and forecasting?
The most used technique is last year plus percentage (63%), followed by driver-based modeling (57%). Note that respondents were allowed to choose more than one technique, which makes sense since companies do not limit themselves to just one.
Also popular: rolling forecasts and activity-based budgeting (both 48%).
The least used are the more complicated techniques that also require high-quality, complete and near- or real-time data – demand-pull (18%) and predictive modeling (15%).
Are you making decisions on gut feel?
Only 7% of the executives surveyed say decision-making at their company is based on instincts, meaning there is no need for FP&A.
“For the majority of the organizations,” report the researchers, “the planning process is data-driven and most others rely on some standardized corporate mandated process.”
So is your FP&A team at the highest level of maturity?
If your FP&A function stores data in spreadsheets and does not have regular access to data beyond basic transactions, it’s far behind the competition. Only 5% of the executives surveyed say this is the case with their FP&A team.
The typical FP&A team – 40% of the companies surveyed – has access to structured operational data and some basic external data and generate insights at the department or line-of-business level. But decision making at these companies are still focused on analyzing past actions and consequences.
The next level of maturity sees FP&A having access to enterprise sources and some external data (29%). Decision-making involves both historic analysis and predictive algorithms.
At the top of the maturity curve, real-time internal and external data is readily accessible and shared across the enterprise. Data-driven decision making is part of the organization’s culture. This is the Holy Grail, say 56% of the executives surveyed – but only 9% report that their FP&A function has reached this stage.
If you are one of this select few, well done. If you are still behind and seeing large variances between forecasts and actual results, keep on walking. Most of your competitors are in the same boat – at least for now.
How well do you do on other metrics?
You can measure your FP&A function against these other metrics, towards the end of bringing it in line with your peers:
Median cost of the forecasting, US$621,230
budgeting and planning process
Median number of staff (FTE) 2
to prepare periodic forecasts
Median number of staff (FTE) 0.5
to develop and maintain budget
policies and procedures
Median number of staff (FTE) 2
to prepare periodic budgets
Median number of days to 15 days
Median number of days to 75 days
complete annual budget